SAY this about all the bickering over the federal debt ceiling: at least people are talking openly about our nation’s growing debt load. This $14.3 trillion issue is front and center – exactly where it should be.

Into the fray comes a thoughtful new paper by Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics, which studies economic policy.

The Peterson Institute was formerly the Institute for International Economics, founded by C. Fred Bergsten. It was subsequently taken over by the Peter G. Peterson Foundation, a foundation established and managed by Richard Nixon’s former Commerce Secretary (and co-founder of Blackstone Group), Pete Peterson. The Peterson Institute is a “think tank” (i.e. propaganda mill) most recognized for its advocacy of “economic austerity” (which usually involves protecting the interests of the wealthy at the expense of the middle class and the impoverished).

Yves Smith of Naked Capitalism, is always quick to rebut the pronouncements of those economists, acting as “hired guns” to spread the gospel of the Peterson Institute. Needless to say, once Gretchen Morgenson began to parrot the Peterson Institute dogma in her aforementioned article, Yves Smith didn’t hesitate to pounce:

I’m generally a Gretchen Morgenson fan, since she’s one of the few writers with a decent bully pulpit who regularly ferrets out misconduct in the corporate and finance arenas. But when she wanders off her regular terrain, the results are mixed, and her current piece is a prime example. She also sometimes pens articles based on a single source, which creates the risk of serving as a mouthpiece for a particular point of view.

(As an aside, a good example of this process has been Ms. Morgenson’s continuing fixation on “mortgage mania” as a cause of the financial crisis after having been upbraided by Barry Ritholtz – twice – for “pushing the Fannie-Freddie CRA meme”.)

After pointing out Morgenson’s uncritical acceptance of the economic model used in the Peterson Institute report (by Gagnon and Hinterschweiger) Yves Smith directed our attention to the very large elephant in the room: the proven fact that au-scare-ity doesn’t work in our post-financial crisis, anemic-growth milieu. Ms. Smith focused on this aspect of the Peterson Institute report:

It also stunningly shows the howler of the Eurozone showing improvements in debt to GDP ratios as a result of the austerity programs being implemented. The examples of Latvia and Ireland have demonstrated that austerity measures have worsened debt to GDP ratios, dramatically in both cases, and the same deflationary dynamics look to be kicking in for Spain.

The article repeats the hoary cliche that deficit cuts must be made to “reassure the markets” as in appease the Bond Gods. Gee, how is that working out in Europe, the Peterson Institute’s obedient student?

European confidence in the economic outlook weakened for a third straight month in May as the region’s worsening debt crisis and surging commodity costs clouded growth prospects.

An index of executive and consumer sentiment in the 17- member euro region slipped to 105.5 from 106.1 in April, the European Commission in Brussels said today. Economists had forecast a drop to 105.7, the median of 27 estimates in a Bloomberg survey showed. The euro-area economy is showing signs of a slowdown as governments toughen austerity measures to lower budget gaps as investors grow increasingly concerned that Greece may default, while oil-driven inflation squeezes household incomes. European manufacturing growth slowed this month….

But the idea of government spending has become anathema in the US, despite plenty of targets (start with our crumbing infrastructure). The banks got first dibs on the “fix the economy” money in the crisis, and continue to balk at measures that would shrink a bloated and highly leveraged banking sector down to a more reasonable size. Evidence already shows the size of the banking sector is constraining growth, yet a full bore campaign is on to gut social spending out of a concern that sometime down the road the size of the government sector will serve as a drag on the economy. In addition, the banksters need to preserve their ability to go back to the well the next time they crash the markets for fun and profit. So the attack on deficits is financial services industry ideology, packaged to make it look like it’s good for the little guy. We have too many people who should know better like Morgenson enabling it.

The reader comments to Ms. Smith’s essay were quite interesting. Many of the readers who have been outraged by Smith’s ongoing rebuttals to the Peterson Institute gospel and other Austerian dogma would do well to familiarize themselves with this bit of legalese:

EXCLUSION OF SOCIAL SECURITY FROM ALL BUDGETS Pub. L. 101-508, title XIII, Sec. 13301(a), Nov. 5, 1990, 104 Stat. 1388-623, provided that: Notwithstanding any other provision of law, the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund shall not be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of – (1) the budget of the United States Government as submitted by the President, (2) the congressional budget, or (3) the Balanced Budget and Emergency Deficit Control Act of 1985.

I include myself among those who are “generally” Gretchen Morgenson fans. Nevertheless, it has become obvious that with Tanta gone, the spirit of “Morgenson Watch” shall endure for as long as the frailties of being a New York Times pundit continue to manifest themselves.

My vintage iPhone sputtered, stammered and finally stalled out as I tried to access an article about derivatives trading after clicking on the link. The process got as far as the appearance of the URL, which indicated that the source was The New York Times. I assumed that the piece had been written by Gretchen Morgenson and that I could read it once I sat down at my regular computer. Within moments, I was at The Big Picture website, where I found another link to the same article. This time it worked and I found that the piece had been written by Louise Story. “Wrong blonde”, I thought to myself. It was at that point when I realized how much the world had changed from the days when “dumb blonde” jokes had been so popular. In fact, a vast amount of the skullduggery that caused and resulted from the financial crisis has been exposed and explained by women with blonde hair. After a handful of unscrupulous Wall Street bankers brought the world’s financial system to the brink of collapse, an even smaller number of blonde, female sleuths set about unwinding this complex web of deceit for “the Average Joe” to understand. Here are a few of them:

ECONNED is the most deeply researched and empirically validated account of the financial meltdown of 2008-2009 and how its unaddressed causes predict similar crises to come. As a long-time Wall Street veteran, Yves Smith, through her influential blog “Naked Capitalism” lucidly explains to her over 2500,000 unique visitors each month exactly what games market players use and how their “innovations” evolved over the years to take the rest of us to the cleaners. Smith is that unusual combination of scholar, expert, participant and teacher, who writes with a clarifying sense of moral outrage and disgust at the decline of ethics on Wall Street and financial markets.

Smith’s daily list of Links at Naked Capitalism, covers a broad range of newsworthy subjects both within and beyond the financial realm. I usually find myself reading all of the articles linked on that page.

Gretchen Morgenson is my favorite reporter for The New York Times. She has proven herself to be Treasury Secretary Turbo Tim Geithner’s worst nightmare. Ms. Morgenson has caused Geithner so much agony, I would not be surprised to hear that he named his recent kidney stone after her. With Jo Becker, Ms. Morgenson wrote the most revealing essay on Geithner back in April of 2009. Once you’ve read it, you will have a better understanding of why Geithner gave away so many billions to the banksters as president of the New York Fed by way of Maiden Lane III. Morgenson subsequently wrote her own article on Maiden Lane III here.

Gretchen Morgenson is often a target of heated criticism on the blogosphere, which I have argued more than once is overdone. While her articles on executive compensation and securities litigation are consistently well reported, she has an appetite for the wilder side of finance, and often looks a bit out of her depth. Typically, she simply runs afoul of finance pedants, who jump on misapplication of industry jargon or minor errors when those (admittedly disconcerting) errors fail to derail the thrust of the argument.

A noted example of this was Morgenson’s article of March 6 2010, in which she explained that Greece was hiding its financial obligations with “credit default swaps” rather than currency swaps. The bloggers who vigilantly watch for her to make such a mistake wouldn’t let go of that one for quite a while. Nevertheless, I like her work. Nobody is perfect.

As I mentioned at the outset of this piece, Louise Story wrote the recent article for The New York Times, concerning anticompetitive practices in the credit derivatives clearing, trading and information services industries. Discussing that subject in a manner that can make it understandable to the “average reader” (someone with a high school education) is no easy task. Beyond that, Ms. Story was able to explain the frustrations of regulators, who had hoped that some degree of transparency could be introduced to the derivatives market as a result of the recently enacted, “Dodd-Frank” financial reform bill. It’s an important article, which has drawn a good deal of well-deserved attention.

Last year, Ms. Story co-authored a New York Times article with Gretchen Morgenson, concerning collateralized debt obligations (CDOs) entitled, “Banks Bundled Bad Debt, Bet Against It and Won”. As I pointed out at the time: Pay close attention to the explanation of how Tim Geithner retained a “special counselor” whose previous responsibilities included oversight of the parent company of an investment firm named Tricadia, Inc. Tricadia has the dubious honor of having helped cause the financial crisis by creating CDOs and then betting against them.

These three women, as well as a number of their non-blonde counterparts (including: Nomi Prins, Janet Tavakoli and Naomi Klein) have exposed a vast amount of the odious activities that caused the financial crisis. They have helped inform and educate the public on what the “good old boys” network of bankers, regulators and lobbyists have been doing to this country. The paradigm shift that took us beyond the sexist stereotype of the “dumb blonde” has brought our society to the point where women – often blonde ones – have intervened to alert the rest of us to the hazards caused by what Paul Farrell of MarketWatch described as “Wall Street’s macho ego trip”.

If you should come across someone who still tells “dumb blonde” jokes – ask that person if he (or she) has read ECONned.

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TheCenterLane.com offers opinion, news and commentary on politics, the economy, finance and other random events that either find their way into the news or are ignored by the news reporting business. As the name suggests, our focus will be on what seems to be happening in The Center Lane of American politics and what the view from the Center reveals about the events in the left and right lanes. Your Host, John T. Burke, Jr., earned his Bachelor of Arts degree from Boston College with a double major in Speech Communications and Philosophy. He earned his law degree (Juris Doctor) from the Illinois Institute of Technology / Chicago-Kent College of Law.